Saturday, 31 March 2012

New Delhi: The Indian government's best kept secret for the past one year is out. The embattled Congress-led United Progressive Alliance (UPA) government is sitting on the financial coup of the century. The content of a set of highly sensitive documents from the Finance Ministry could not only salvage the deadlocked politics of a scam-riddled coalition but help push India ahead of China as the world's second largest economy as early as 2015.

The documents, a series of top secret internal memos that have been in existence since the first quarter of 2011 but recently accessed by sources, indicates that the government has reclaimed almost all of the black money lying in offshore tax havens - a staggering Rs 1412 lakh crore. This is almost 70 times higher than the figure of Rs 70 lakh crore put forward by a BJP think tank and crusader Ramdev in 2011.

Earlier, Finance Minister Pranab Mukherjee had said that there are no reliable estimates of black money inside and outside the country. According to reports, an interim task force in 2009 found illicit funds to range between $500 billion and what is now the size of India's economy of $1.4 trillion. But the new estimate has led economists into believing that India could easily beat China and emerge as a global superpower if the black money is brought back to the country.

A senior official in the Finance Ministry, said to be close to the PM, initially refused to confirm or deny the news. He later said on the condition of anonymity that due to the sensitive nature of the news and its far-reaching ramification the government will not make the news public until the modalities were worked out of how to channelise the money into various projects without triggering panic in the global stock markets.

The documents also list the names of the individuals whose accounts in foreign banks have been accessed by the government. A stud farm owner, an entertainment mogul, several former central ministers and bureaucrats make up the list.

Following in the footsteps of the USA, Germany and Austria, India had been pressing the tax havens to reveal the names of the businessmen, underworld mafia and wealthy politicians who have evaded the tax authorities in their country for decades and parked their earnings in banks in Switzerland, Cayman Islands, British Virgin Islands, Mauritius and St Kitts. If the documents are to be believed, the government has finally been able to cut a tax deal that would enable it to bring back the money and pump it into the economy.

Far-reaching implications

The implications of the huge recovery and the subsequent fattening of Indian coffers are immense. When added to India's GDP, which currently stands at Rs 228 lakh crore, the recovered money will help India overtake China and push its position to number two in the list of global economies. It is precisely the kind of boost the Indian economy was hoping to get while the existing scenario looks grim.

Sources in the government also disclosed that Finance Ministry knew about the actual estimate of the black money and was already in active talks with the heads of state of the respective nations to work out a way of retrieving it before the budget was presented on March 16 in Parliament.

But after a high-level meeting it was decided that the recovered money shall be used from the next financial year, i.e. 2013-14, and not now.

The UPA will undoubtedly claim the credit for the recovery. The decision is significant since the possibilities of the next Lok Sabha elections in 2013 cannot be denied and Congress will try to extract maximum political mileage out of the recovery.

WikiLeaks reveals secret meeting

Interestingly, a 2010 WikiLeaks document, the copy of which was attached to one of the memos, indicated that a senior Planning Commission member met a top Swiss Finance Ministry official in the same year to discuss "transference".

A WikiLeaks document with the reference code AFD1241 stated that the Indian official met Finance Secretary Olof Rilap, who also sits on the board of Switzerland's oldest and most prominent banks.

The biggest challenge for the government will be to keep the money secure from its overbearing allies such as the Trinamool Congress and the NCP, its equal distribution for developmental projects and pay off foreign debt.

Economists uncertain

"No one can say for sure how the dramatic shift of wealth concentration from the Western economies to the East will affect the region in the longer run and unsettle India's inflationary targets," Miheer Sengupta, a leading economist said.

"If you see the IMF prediction for emerging economies next year, the expansion rate is below par and a large amount of funds available for free disbursement could unstabilise long-term development goals," he said. The IMF predicted that emerging economies will expand by 5.4 per cent in 2012 and 5.9 per cent next year.

Many foreign governments, led by the United States, are forcing tax havens to reveal their secrets, spurred by efforts to root out suspected terrorist funding. Switzerland has already agreed to allow tax evasion investigations with countries including the US and Germany and struck deals with Germany and Britain to enable them to claw taxes back from their nationals, according to reports.

Break-up of the money

The major chunk of the money is predictably lying in Switzerland, traditionally a safe haven for tax evaders. The documents state that almost 45 per cent of the money is with Swiss bank accounts, 10 per cent with Guatemala, Costa Rica and Uruguay, 20 per cent with Liechtenstein banks, and 25 per cent with Cayman Islands (United Kingdom), The Channel Islands of Jersey and Guernsey (United Kingdom).

The fact that this revelation is made on the first of April indicates the authenticity of the report.